Question

If households save Rs. 500 crores out of an additional income of Rs. 5,000 crores, then calculate MPC.

Answer 1

Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income.

Additional income= Rs. 5,000 crores and change in savings= Rs. 500 crores.

change in consumption= 5000-500 = Rs. 4,500 crores.

MPC= change in consumption/ change in income

= 4500/5000= 0.9